Regulation Z, 12 C.F.R. § 226, issued by the Federal Reserve Board pursuant to the Truth in Lending Act, provides that a creditor must give contemporaneous notice to a consumer when certain credit terms are changed. On June 21, 2010, the Supreme Court granted certiorari in Chase Bank USA v. McCoy, No. 09-329, to determine whether Regulation Z requires a creditor to provide a consumer with a change-in-terms notice when, pursuant to a contractual provision, the creditor increases the interest rate in response to the consumer’s default.
Although the specific provision at issue has been changed prospectively, this case is nonetheless important to credit card issuers and other creditors because it will likely determine whether their past practices, which have been challenged in class-action suits, will give rise to what could be substantial liability. The Court’s decision may also clarify the degree of deference courts owe an agency’s description of current law when proposing a change to that law.
The petitioner in this case issues credit cards. In keeping with industry practice, the petitioner applied an increased interest rate, without contemporaneous notice, to an account after a cardholder’s late payment or other default, under a contractual provision that allowed such an increase. The respondent filed a class-action lawsuit alleging that the petitioner violated the Truth in Lending Act by failing to provide contemporaneous notice of the increases. Consistent with the Federal Reserve Board’s own interpretation of Regulation Z, the Seventh Circuit and a previous Ninth Circuit panel had held that the Truth in Lending Act requires no such notice. In the decision below, however, the Ninth Circuit gave no deference to the Board’s interpretation and held that a creditor is required to provide contemporaneous notice of such rate increases.
Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 12, 2010, and amicus briefs in support of the respondent will be due on September 14, 2010. Any questions about this case should be directed to Andrew Tauber (+1 202 263 3324) in our Washington, DC office.
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